Text Size

PRESSURE’S ON: JPMORGAN HEARINGS BEGIN - From opening remarks to be delivered at this morning’s derivatives hearing (really the first JPM hearing) by Senate Banking Committee Chairman Tim Johnson (D-S.D.): “JPMorgan’s massive trading loss is a stark reminder of the financial crisis of 2008 and the necessity of Wall Street reform. Since the firm’s May 10th conference call, my staff and Ranking Member Shelby’s staff have jointly held briefings with regulators, and a briefing with the company itself. Following these briefings I announced last week that I intend to call J.P. Morgan’s CEO Jamie Dimon to testify before the Committee. In calling for Mr. Dimon to testify, I expect him to inform the Committee of the details surrounding what has been reported to be a very complex trade.

“With today’s hearing, our June 6th bank supervision hearing with other key regulators and Treasury, and the hearing with Mr. Dimon, the Committee is on its way to having a more complete understanding of the facts about the J.P. Morgan matter that will help us better oversee the implementation of Wall Street reform ... It is understandable that this high profile trading loss has caused many to renew their interest in Wall Street reform, but as Chairman I have never taken my eye off the ball. That is why we are here today continuing our oversight responsibilities.”

STAFF MEMO: JPM IN FOCUS - From the internal staff prep memo on the hearing: “[W]hile the primary focus of this hearing will be on the implementation of the reforms to the derivatives market, the hearing will also provide the first of several opportunities in the Banking Committee to review the recently reported trading loss by JP Morgan Chase” Full memo: http://bit.ly/KhLI68

JPM IMPACT - How much has the JPM trading loss changed the lobbying landscape around Volcker and the rest of Dodd-Frank? One top industry hand told M.M. last night: “It just blew up everything I’ve been working on.”

SCHNEIDERMAN RAMPS UP - POLITICO’s Darren Samuelsohn: “Senior administration officials and New York Attorney General Eric Schneiderman said they’re busy behind the scenes doubling their team to more than 100 federal and state financial experts and drawing on staff in 10 U.S. attorneys’ offices around the country. Matthew Stegman, an assistant U.S. attorney, has been tapped as the group’s lead coordinator, according to three sources familiar with the task force’s work. ...

The unit has also delivered more than 20 civil subpoenas, collected more than a million documents and deposed many witnesses as it digs through the work of bankers, mortgage brokers, appraisers and others who from about 2004 to 2007 helped millions of Americans buy homes they couldn’t afford at prices that didn’t match their property values — all while bundling the mortgages into securities for sale to investors.” http://politi.co/JMfgK0

TOP STORY: OBAMA’S BAIN MUTINY - POLITICO’s Glenn Thrush and Maggie Haberman: “President Barack Obama flew into Chicago grimly set on ending the war in Afghanistan — and left his hometown by gleefully starting a new one over Bain Capital with Mitt Romney. If Obama had any reticence about diving into an election-year controversy at an otherwise deeply sober gathering ... he wasn’t showing it ... when asked about the escalating controversy over Romney’s stewardship of his highly profitable private equity firm. ... ‘My opponent, Gov. Romney, his main calling card for why he should be president is his business experience,’ Obama told American and international reporters ...

“‘When you’re president, as opposed to the head of a private equity firm, then your job is not simply to maximize profits. ... So, if your main argument for how to grow the economy is ‘I knew how to make a lot of money for investors,’ then you’re missing what this job is about,” Obama said. ‘It doesn’t mean you weren’t good at private equity, but that’s not what my job is as president. ... This is not a distraction. This is what this campaign is going to be about,’ Obama said.’ http://bit.ly/K9PjCL

ROMNEY STATEMENT - “President Obama confirmed ... that he will continue his attacks on the free enterprise system, which Mayor Booker and other leading Democrats have spoken out against ... What this election is about is the 23 million Americans who are still struggling to find work and the millions who have lost their homes and have fallen into poverty. President Obama refuses to accept moral responsibility for his failed policies. My campaign is offering a positive agenda to help America get back to work.”

ROMNEY NYC HAUL: $10 MILLION - POLITICO’s Maggie Haberman: “Ahead of Romney’s arrival, Spencer Zwick came on stage and talked up the Romney campaign’s fundraising numbers. He told the audience, ‘We will raise more than $10 million and potentially substantially more than that.” He said the funds are coming from a Sunday finance event in CT, today’s two NYC events and a fundraiser tomorrow. He gave props to Woody Johnson, Romney’s NY chairman, who also spoke before Romney’s arrival. ‘We were expecting Obama to bury us three to one or four to one,’ Johnson said. He said ‘there is a reason we are so close’ and said it was because people are unhappy with the Obama administration.” http://politi.co/KFVFIs

GOOD TUESDAY MORNING - Due to a technical glitch involving computers and other things we hate, M.M. was truncated yesterday and lost the “Driving the Week” section. Management regrets the error and much of the 21st century.

MANY THANKS to the fine people at The Clearing House for having M.M. to dinner and a lively panel discussion last night with WSJ’s Victoria McGrane, FT’s Robin Harding and American Banker’s Barbara Rehm. The event was off the record but be sure to ask Stan Collender to tell you his Derek Jeter story. Amazing.

** A message from CIT: Growmerica™ [groh-mer-i-kuh] Definition: Growth opportunities created when CIT finances America’s small and middle market businesses. CIT provides credit access to businesses in your communities, contributing to a stronger economy for all Americans. Visit http://bit.ly/K5djIp. **

DRIVING THE DAY - Senate Banking Committee hearings begins at 10:00 a.m. ... VP Joe Biden campaigns in Keene, N.H. at 1:45 p.m. and the Romney campaign will hold a press call at 10:30 a.m. “welcoming” Biden to the state featuring top attack dog/former N.H. Gov. John Sununu ... Romney has another NYC fundraising event, this one at 6:00 p.m. at the Grand Hyatt ... U.S. Chamber holds its Small Business Summit ... Existing homes sales, out at 8:30 a.m., expected to rise to 4.61 million from 4.48 million ... FSOC meets today and will discuss JPMorgan, among other things

JPM SUSPENDS BUYBACKS - FT’s Tom Braithwaite in New York on pg. 1: “JPMorgan Chase’s shareholders suffered a further blow ... when the bank suspended its $15bn share buy back programme to preserve capital following the $2bn trading loss. With the embattled bank’s shares falling another 2 per cent on the news, investors have seen $30bn wiped off the bank’s market value since the losses in its chief investment office were revealed 10 days ago. Jamie Dimon ... said: ‘Obviously, we’re not going to make as much money.’ But he said the suspension of its share buyback programme did not imply that the bank was suffering worse losses than already stated. ... ‘There’s no outcome that would be a disaster for this company. I am not sitting here worried about the ultimate loss on this thing. This thing is an embarrassment; it’s a black mark,’ he said. However, Morgan Stanley analysts have forecast the total trading loss could be as high as $5bn” http://on.ft.com/Jk9lwr

FACEBOOK TANKS - LATimes’ Salvador Rodriguez: “For Mark Zuckerberg's sake, hopefully he went on a honeymoon because he'll need something to take his mind off the billions of dollars he lost on Facebook's second day of trading. ... Shares of the social network began to trade under its $38 IPO price for the first time on its second day in the public market. Facebook shares opened Monday at $35.75, and at one point they went down as low as $33. Zuckerberg, who owns 503.6 million shares of his company, saw the value of the Facebook shares he holds slide from $19.25 billion at the end of the day Friday to $18 billion at the start of regular trading Monday and then all the way down to about $16.62 billion ... At the close of the trading day, Facebook had a stock price of $34.03, down almost 11% from its close Friday. At that price, Zuckerberg's Facebook holdings are worth about $17.14 billion. That's a loss of about $2.11 billion. Ouch.” http://lat.ms/KHwYzx

MORGAN STANLEY TAKES THE HEAT - Bloomberg’s Serena Saitto, Lee Spears and Joseph Ciolli: “Let the Facebook finger-pointing begin. After one of the most anticipated initial public offerings in history, Facebook’s 11 percent drop ... prompted investors to fault everything from Morgan Stanley’s role as lead underwriter, to the company’s greed and the Nasdaq Stock Market. ... Taking the most heat is Morgan Stanley ... The bank was lead underwriter among the 33 firms Facebook hired to manage the $16 billion sale of stock. The bank decided with Facebook executives to boost the size and price days before the May 17 IPO, ignoring advice from some co-managers, said people with knowledge of the matter ... Morgan Stanley talked with few of its fellow underwriters aside from JPMorgan Chase and Goldman Sachs throughout the IPO, one person said. ‘They overplayed the enthusiasm and probably just misread the atmosphere of the marketplace,’ said Keith Wirtz, who oversees $15 billion as chief investment officer at Fifth Third Asset Management in Cincinnati and bought some stock in the IPO ... Some investors say they felt misled by the underwriters. According to one London-based fund manager who asked not to be named, bankers indicated demand was so strong that he placed a bigger order than he thought he would get, leaving him with 40 percent more Facebook shares than anticipated” http://bloom.bg/LgxVx7

SEC STRUGGLES WITH EXECS WHO WON’T SETTLE - Bloomberg’s Joshua Gallu: “The [SEC] ... long known for settling enforcement actions without having to prove its case in court, is struggling to cope with a surge in the number of executives and companies willing to go to trial to defend themselves. The SEC’s office in Washington is actively litigating about 90 cases, up more than 50 percent in the past year, Matthew Martens, the SEC’s chief litigation counsel, said in an interview. At the same time, Martens’ trial unit staff has stayed relatively flat at about 36. ... Martens said it’s critical that his unit present a credible threat. ‘At the end of the day, if we can’t win cases, then people don’t settle. That’s the reality,’ he said. The wave of litigation has two main sources: more complex cases stemming from the 2008 financial crisis and a related increase in lawsuits filed against individual executives.”MOYNIHAN ON GLASS-STEAGALL - Forbes’ Halah Touryalai: “There’s been a lot of talk about the return of Glass Steagall but Bank of America CEO Brian Moynihan thinks the universal banking model is crucial for his business. ... The CEO of the nation’s second largest bank said the model is the ‘most important’ model there is because it gives consumers access to global information, capital markets, investment advice and basic banking all in one place. ‘We can’t be competitive if we can’t provide all those services to our consumers,’ he says.

“Moynihan argued that the dialogue on banking has gone from concerns about ‘too big to fail to too big to manage.’ He noted that regulations brought forth by Dodd-Frank have addressed the former and added that BofA has dramatically narrowed down the scope of its business to address the later. ‘Three years ago when we merged [with Merrill Lynch] our balance sheet was $2.7 billion. Now we are down to a $2.18 billion balance sheet, and we’ve doubled liquidity and capital,’ he says” http://onforb.es/K6CGtj

OBAMA RUNS FEWER ADS THAN BUSH - Bloomberg’s Greg Giroux: “In March 2004, as Massachusetts Senator John Kerry emerged as the presumptive Democratic presidential nominee, then-President George W. Bush was ready to strike, dropping $40 million on ads that mostly attacked his opponent on defense spending, terrorism and taxes. Kerry’s negative ratings with voters rose to 37 percent in mid-April from 26 percent in mid-February ... In the early stage of this year’s general election campaign ...

“Obama and his allies are taking a different tack. They haven’t assailed ... Romney with the same intensity, spending $4.5 million to run ads in March, April and early May, one-ninth of Bush’s total during the same three-month period four years ago, according to New York-based Kantar Media’s CMAG, an advertising tracking firm. While Obama intensified his ad campaign this month, the spots tout his record as president more than they attack Romney, the data shows.” http://bloom.bg/LndgUJ

TALKER: CHINA BYPASSES WALL STREET FOR U.S. BONDS - Reuters’ Emily Flitter: “China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government, according to documents viewed by Reuters. The relationship means the People's Bank of China buys U.S. debt using a different method than any other central bank in the world. The other central banks, including the Bank of Japan ... place orders for U.S. debt with major Wall Street banks ... China, which holds $1.17 trillion in U.S. Treasuries, still buys some Treasuries through primary dealers, but since June 2011, that route hasn't been necessary.” http://reut.rs/K6Dy15

GOLDMAN GETS A LOVE-LETTER -- Forbes' Nathan Vardi: “Lloyd Blankfein, the chief executive of Goldman Sachs, is looking pretty good right now. For the last few years, Wall Street's most revered financial firm has been humbled by a $550 million Securities & Exchange Commission settlement, humiliating congressional hearings and a former employee who resigned in the opinion pages of The New York Times. Fabulous Fab and muppets seemed to be dragging down the Goldman Sachs, meanwhile, sold $1.09 billion of Facebook shares in the offering, nearly half the shares it owned for itself and its clients. That is increasingly looking like a genius move now that Facebook is trading nearly 12% below its offering price. ... At the same time, Goldman Sachs is regaining its reputation as the smartest big firm on Wall Street. The halo that hovered over Jamie Dimon and JPMorgan has evaporated amid the so-called London Whale trading debacle that has already cost JPMorgan $2 billion and could cost it as much as $5 billion. This is the kind of trading disaster that Blankfein and Goldman have long avoided.” http://onforb.es/Jyp2uN

BAIN FLY-AROUND --

“CALLOUS CORPORATE RAIDER” - WSJ’s Laura Meckler: “[Obama’s] comments came as his campaign began a second week of portraying Mr. Romney, the presumed Republican presidential candidate, as a callous corporate raider by spotlighting companies Bain took over that later went bankrupt and resulted in job losses ... Mr. Romney has repeatedly cited his private-sector business experience in arguing that he can better help the economy to grow. The Obama campaign is trying to turn that experience against him, part of a broader strategy to make the fall election a choice between two philosophies rather than a referendum on the president's handling of the economy” http://on.wsj.com/Jyd846

ROMNEY WEB VIDEO - “Big Bain Backfire,” uses Newark Mayor Cory Booker’s “Meet the Press” comments (but not the walk- back video) as well as former Tennessee Rep. Harold Ford’s comments that private equity “is a good thing in many, many instances” and Steve Rattner’s remarks that Bain has not done anything “they need to be embarrassed about.” http://mi.tt/KPbRaF

PRIVATE EQUITY GROWTH CAPITAL COUNCIL statement: “Booker’s comments ... revealed what is likely becoming a growing concern for elected officials in states across the country who understand the critical role that private equity plays in their state and local economies. Hundreds of billions of dollars have been invested in tens of thousands businesses in all fifty states, driving growth, strengthening companies, and providing financial security for millions of Americans. It is no wonder Mayor Booker finds these attacks ‘nauseating.’

BOOKER RAISES BIG WALL STREET MONEY - Think Progress’ Josh Israel: “A ThinkProgress examination of New Jersey campaign finance records for Booker’s first run for Mayor — back in 2002 — suggests a possible reason for his unease with attacks on Bain Capital and venture capital. They were among his earliest and most generous backers. Contributions to his 2002 campaign from venture capitalists, investors, and big Wall Street bankers brought him more than $115,000 for his 2002 campaign. Among those contributing to his campaign were John Connaughton ($2,000), Steve Pagliuca ($2,200), Jonathan Lavine ($1,000) — all of Bain Capital. While the forms are not totally clear, it appears the campaign raised less than $800,000 total, making this a significant percentage” http://bit.ly/KPl02W

OBAMA ENDORSES BURN DOWN BAINEFFORTS - NYT’s Helene Cooper and Michael D. Shear: “Mr. Obama’s comments were his first explicit endorsement of his campaign’s aggressive strategy attacking Bain Capital. The Obama campaign’s full-throated assault, through ads, statements and Web videos, is now in its second week and portrays Mr. Romney in highly personal and unflattering ways ... The focus on the Bain attacks has added to the clash between the two campaigns and their allies about the increasingly negative tone of the 2012 presidential campaign, especially as Mr. Obama seeks to define Mr. Romney in the eyes of voters. Targeting Bain carries risks for the president, not least with wealthy Wall Street executives whose largess in 2008 helped finance his campaign. Some of those supporters have already soured on the president after his efforts to tighten regulation of their industry” http://nyti.ms/KhWglM

JPM FLY-AROUND -

BETTER MARKETS SEEK SPECIAL JPM COUNCIL - From Better Markets sent to AG Eric Holder today asking for a JPMorgan special counsel: “With Americans distrustful and suspicious of government and Wall Street, particularly in light of the government's multi-trillion dollar bailout of Wall Street while Main Street suffered, it is imperative that an independent, thorough, and full investigation of the largest, most powerful, and most politically connected bank in the country be conducted expeditiously by an unconflicted Special Counsel” Full letter: http://bit.ly/KGO0h9

RIVALS GAIN - WSJ’s Gregory Zuckerman and Liz Rappaport on pg. C1: “The trading blunders that have cost J.P. Morgan Chase at least $2 billion are shaping up as a boon for some of the bank's biggest rivals. A group of about a dozen banks, including Goldman Sachs Group and Bank of America have scored profits that collectively could total $500 million to $1 billion on trades that sometimes pit them directly against J.P. Morgan's Chief Investment Office, according to traders ... The banks made money in various ways. Some sought to trade directly with the J.P. Morgan unit and Bruno Iksil ... These banks built positions for either themselves or for clients in the insurance-like products called credit default swaps that J.P. Morgan spent much of this year selling.

The banks' expectation was that the swaps would rise in value, earning a profit. Others acted as intermediaries between their clients and the J.P. Morgan unit, according to traders and people close to the matter. Some of these banks purchased positions from J.P. Morgan intending to sell them to clients but weren't able to ...These banks ended up with a serendipitous windfall when the swaps rose in value, leaving J.P. Morgan's trades with losses” http://on.wsj.com/K6GQ4C

WHITHER GLASS-STEAGALL? - NYT’s Andrew Ross Sorkin: “Call it the Glass-Steagall myth. Since JPMorgan Chase announced its surprise $2 billion, and growing, trading loss there have been renewed calls from economists, pundits and politicians to reinstate the Glass-Steagall Act, a Depression-era law that prevented commercial banks from participating in investment banking activities ... The facts — basic facts — just aren’t that convenient. While the repeal of Glass-Steagall has seemingly become the sine qua non of the financial crisis, it is pure historical revisionism. ...

“Glass-Steagall wouldn’t have prevented the last financial crisis. And it probably wouldn’t have prevented JPMorgan’s $2 billion-plus trading loss. The loss occurred on the commercial side of the bank, not at the investment bank. ... When I called [Elizabeth] Warren and pressed her about whether she thought the financial crisis or JPMorgan’s losses could have been avoided if Glass-Steagall were in place, she conceded: ‘The answer is probably ‘No’ to both.” http://nyti.ms/J9LdYK

ALSO FOR YOUR RADAR -

WHAT CAUSED THE CRISIS - Americans for Financial Reform in a blog post responding to the M.M. item last week in which a former regulator argued that it was bad mortgages not risky trading that caused the financial crisis: “Problems in the mortgage market triggered the collapse because of a vast structure of financial market trades based indirectly on the value of those mortgages. That structure included trillions of dollars in synthetic derivatives bets (synthetic CDOs), as well as trillions of dollars in short-term (overnight) funding tied directly to traded valuations. That was the structure that collapsed and took the economy down with it.” Full post: http://bit.ly/KHD2rJ

FANTASY SPORTS EXEC LEAGUE - Per FORTUNE: “FORTUNE has launched the FORTUNE Fantasy Sports Executive League, which allows readers to create their own ‘Executive Dream Team’ and track how their choices measure up to other readers as well as experts. Readers will be able to see how their picks line up with FORTUNE's annual Executive Dream Team announced on July 26” http://bit.ly/KFTsN8

GOLDMAN SPREADS TECH WEALTH - Bloomberg’s Douglas MacMillan and Christine Harper: “Goldman Sachs ... which last week doubled its money from a 2010 bet on Facebook ... is ramping up investments in Web startups, underscoring the allure of high-growth tech companies to financiers far from Silicon Valley. Goldman Sachs led a $52 million round of funding in AnchorFree, the Mountain View, California-based maker of Internet-surfing software said today in a statement. The bank is also in talks to invest in Spotify Ltd. in a deal that would value the London-based music-streaming service at up to $4 billion ... Under Chief Executive Officer Lloyd C. Blankfein, Goldman Sachs increased the size of its trading and investing operations before the financial crisis, helping to make it the most profitable securities firm in Wall Street history” http://bloom.bg/KFTYe1

FAMILY GROUPS PRESS ON GAMBLING - A number of family values groups including the Eagle Forum and the Catholic League for Religious and Civil Liberties wrote to House Speaker Boehner urging him to block the expansion of online gambling: “Unfortunately Congress’ clear intent in the Unlawful Internet Gambling Act of 2006 (UIGEA) is now under assault and we are writing to urge you to work once again to protect those most at risk from the proliferation of illegal internet gambling” Full letter: http://bit.ly/J9JS3Y